Dollar Struggles For Direction As Softer CPI Fails To Trigger Major Moves

Dollar is struggling to find a definitive direction in early US session, even after the softer-than-expected Consumer Price Index report offered fresh evidence of easing inflation pressures. Annual core CPI now sits at its lowest level since 2021, a development that should bring some relief to both the Fed and markets. However, the data release has not sparked a substantial move in the greenback, as lingering tariff concerns keep traders in a wait-and-see mode.

The most immediate market reactions have been more evident in equities and bonds. US stock futures are rebounding on the prospect of Fed easing sooner. Funds are flowing out of bonds, pushing the benchmark 10-year Treasury yield higher. Yet overall market caution remains elevated, with tariffs casting a shadow over trade and growth prospects.

For now, Canadian Dollar is currently in the lead for the day, although BoC’s upcoming rate decision could quickly change that dynamic. Dollar is the second-best performer on the day, followed by the British pound. At the other end of the spectrum, Japanese Yen is faring the worst, trailed by Euro, which is digesting recent strong gains, and then Australian Dollar. New Zealand Dollar and Swiss Franc are hovering in the middle of the pack.

Technically, USD/JPY’s rebound today is much more due to Yen’s pullback then Dollar’s strength. Price actions from 146.52 are still viewed as a corrective pattern. Upside should be limited by 150.92 support turned resistance. Fall from 158.86 is expected to resume through 146.52 after the corrective pattern completes.

In Europe, at the time of writing, FTSE is up 0.50%. DAX is up 1.87%. CAC is up 1.35%. UK 10-year yield is up 0.054 at 4.684. Germany 10-year yield is up 0.038 at 2.934. Earlier in Asia, Nikkei rose 0.07%. Hong Kong HSI fell -0.76%. China Shanghai SSE fell -0.23%. Singapore Strait Times rose 0.19%. Japan 10-year JGB yield rose 0.017 to 1.524.

US core CPI falls to 3.1%, lowest since 2021

US consumer inflation slowed more than expected in February. Headline CPI rose just 0.2% mom, below forecasts of 0.3% mom. Core CPI, which excludes food and energy, also increased by 0.2% mom, missing expectations of 0.3% mom.

On an annual basis, inflation eased to 2.8% yoy from 3.0% yoy in January. Core CPI fell from 3.3% yoy to 3.1% yoy, the lowest level since April 2021. The deceleration in price pressures suggests that disinflationary momentum is gradually resuming after months of stubbornly high core readings.

ECB’s Lagarde stresses commitment to price stability amid exceptional high uncertainty

ECB President Christine Lagarde highlighted the “exceptionally high” level of global uncertainty in her speech today, highlighting the challenges posed by trade policy shifts and geopolitical tensions.

She noted that an index measuring trade policy uncertainty is now close to 350—more than six times its average value since 2021. Geopolitical risk indicators are at levels unseen since the Cold War, aside from periods of war and major terrorist attacks.

Against this backdrop, Lagarde emphasized that ECB’s primary focus remains on maintaining price stability over the medium term, stressing that this commitment is “more important than ever” in an unpredictable economic environment.

To achieve this, Lagarde stressed the need for “agility to respond to new shocks” while maintaining a structured policy framework that prevents “short-sighted reactions and unbridled discretion”.

She also noted the importance of combining agility with clarity, stating that while the ECB may not always be able to provide certainty about the exact path of interest rates, it can ensure “clarity about our reaction function”.

BoJ’s Ueda acknowledges rising yields as market bets on policy shift

BoJ Governor Kazuo Ueda addressed the recent rise in bond yields, and noted, “I don’t see a big divergence between our view and that of markets”.

Speaking to parliament, Ueda emphasized the “biggest determinant” of long-term interest rates is market expectations regarding the central bank’s short-term policy rate.

He added, it is “natural for long-term rates to move in a way that reflects such market forecasts”. His comments come as Japan’s benchmark 10-year bond yield surged to a 16-year high of 1.575% on Monday.

Separately, Japan’s latest inflation data showed that annual wholesale inflation slowed slightly in February. Corporate goods price index , which tracks the prices businesses charge each other for goods and services, rose 4.0% yoy, in line with market expectations, down from January’s 4.2% yoy increase.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0849; (P) 1.0898; (R1) 1.0968; More…

While EUR/USD continues to lose momentum as seen in 4H MACD, there is no clear sign that a correction is imminent yet. Further rise is in favor as long as 1.0804 support holds. Sustained trading above 161.8% projection of 1.0176 to 1.0531 from 1.0358 at 1.0932 will target 261.8% projection at 1.1287, which is slightly above 1.1274 key resistance. Nevertheless, firm break of 1.0804 should now indicate short term topping, and bring deeper pullback.

In the bigger picture, the strong break of 55 W EMA (now at 1.0675) suggests that fall from 1.1274 (2024 high) has completed as a three wave correction to 1.0176. Rise from 0.9534 is still intact, and might be ready to resume. Decisive break of 1.1274 will target 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. Also, that will send EUR/USD through a multi-decade channel resistance will carries larger bullish implication. This will now be the favored case as long as 1.0531 resistance turned support holds.